2017-10-26
All the signs indicate that 2017 will be one of the best years for Lithuania’s exporters. Exports of goods and services ascended at the fastest pace since 2013 in the first half of the year. Indicators pertaining to the exports of goods have been especially gratifying this year given, in particular, the significantly faster growth of exports of goods of Lithuanian origin (excluding mineral products) and re-exports. Data for the eight-month period shows growth in exports of most goods to all regions, including the European Union (EU), the Commonwealth of Independent States (CIS) and other countries. While growth in exports of goods has recently decelerated somewhat as a result of poorer crop harvest, it still continues at a double-digit pace.
Nerijus Černiauskas, Senior Economist at the Macroeconomics and Forecasting Division of the Bank of Lithuania
Factors encouraging exports include, inter alia, favourable trends in the EU market, in particular the euro area countries. This year, the volume of imports and exports of EU countries has been growing at a faster pace than last year, which is explained by a more favourable environment in international markets. However, exports of Lithuanian goods to the EU have been rising at a much faster pace than total EU imports of goods. In other words, Lithuania has been expanding to the EU more rapidly than other countries. This reflects in part the successful reorientation of our country’s exports, triggered by restrictions in alternative markets (such as restrictions in Russia). Additionally, the increase in manufacturing output in Lithuania has been more substantial than in other EU countries. The rapid rise in manufacturing output can be explained by investment, which has been growing since 2016, and spare production capacities. These factors have contributed to the strong growth in exports of goods of Lithuanian origin (excluding mineral products) in general and, in particular, on exports of milk and dairy products, furniture and plastics.
Business expectations regarding export development in the months ahead are still optimistic. This is evidenced by industry surveys. Exports of food and drinks, timber and furniture as well as electronics products are all expected to grow in the near future, thereby feeding into expectations of both better export performance and further growth in wages and job creation. On the other hand, businesses are reluctant to invest in pure capacity expansion and are more inclined to put their money into modernisation in order to be competitive and keep pace with wage growth.
Another big success has been the growth of re-exports. The first half of 2017 saw rapid growth in re-exports to CIS countries, in particular Russia, as the situation in Russia improved in that period (such as the year-on-year increase in the exchange rate of Russia’s rouble or the nascent recovery of domestic demand). This has led to an increase in Russia’s imports, which, in turn, has had an impact on both re-exports to Russia and other CIS countries maintaining close commercial and financial ties with Russia.
Moreover, Lithuania’s carriers have seen improvements in conditions for the transport of goods to and from Russia. An agreement signed between the transport ministries of Lithuania and Russia in October will lead to an increase in the number of the so-called third-party road haulage permits (allowing to transport goods to and from third countries) and Russia’s bilateral permits (allowing to transport third-country goods from terminals in our country) this year and the next. We are particularly interested in the third-party permits as these enable our country’s hauliers to transport goods from other European countries (e.g. Germany) to Russia and vice versa.
It is clear, however, that downside risks to exports remain, given in particular the recent advance of the euro against the US dollar, which means that our goods have become more expensive for foreign customers. Wage growth and pressure on businesses, which fail to modernise production, to raise the prices of their goods are also intensifying. However, what Lithuania’s exporters stress the most is the gradually increasing shortage of workers, which is indicated by as much as 15 per cent of industrial undertakings. Yet this challenge is not only typical of Lithuania as similar trends are visible in most EU countries.